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Sunday, July 13, 2014

Has casino expansion created glut in Northeast?

As New Hampshire creeps closer to legalizing casino gambling, new doubts are being raised that the proliferation of casinos throughout the Northeast over the last decade render it a bad investment.

Two recent national studies suggest that regardless of what happens to three casinos planned in Massachusetts, there’s marginal money to be made from one here because of the proliferation of casino sites stretching from Pennsylvania to Maine. ...

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As New Hampshire creeps closer to legalizing casino gambling, new doubts are being raised that the proliferation of casinos throughout the Northeast over the last decade render it a bad investment.

Two recent national studies suggest that regardless of what happens to three casinos planned in Massachusetts, there’s marginal money to be made from one here because of the proliferation of casino sites stretching from Pennsylvania to Maine.

“Although we expect gaming revenue trends to improve, we remain cautious as the overall market is reaching a saturation point and consumers remain guarded with their discretionary income,” Fitch Ratings, a Wall Street rating agency of the Northeast, said in its gambling outlook for 2014.

Earlier this month, Moody’s Investors Service lowered its outlook on the United States gaming industry to “negative” from “stable.”

“The fact regional gaming revenues excluding Nevada remained flat, despite further improvement in the economy and additional regional casinos throughout the U.S., is a strong indication that U.S. consumers will continue to limit their spending to items more essential than gaming,” Moody’s Senior Vice President Keith Foley wrote.

These ominous signals come just weeks after the New Hampshire House of Representatives, by one vote, defeated legislation authorizing a major casino in Salem. This question will be debated again in the 2015 legislative session.

A decade ago, there were 24 Las Vegas-style casino resorts in five Northeast and Mid-Atlantic states, with almost half of those in Atlantic City, N.J. Today, there are 61 casinos or slot parlors at racetracks, with Maine and Rhode Island joining the list of states with gambling facilities.

Another 12 casinos are in the pipeline, including licenses for three casinos and one slot parlor to be awarded in Massachusetts.

Boston Mayor Martin Walsh and Mohegan Sun announced a deal on Thursday to provide the city at least $300 million in investments over 15 years if the casino company wins a state gambling license to build a $1.3 billion gambling resort at the Suffolk Downs horse racing track in neighboring Revere.

The Northeast casino boom has pushed regional revenues up 72 percent since 2001, greater by far at than any other region of the country, according to a University of Nevada at Las Vegas report.

This growth spurt occurred while the gaming industry suffered through a recession-induced slump that led to job losses, casino closures and even some government givebacks to casino owners.

More recently, however, Northeast gambling revenues have leveled off, with some states – Connecticut, Delaware and New Jersey –
generating less revenue in 2013 than in 2004.

“Nobody can argue that casinos have flooded the Northeast market, and frankly, the only chance for profit at all, albeit fleeting over time, would be to build a massive destination resort that’s a lot bigger than what they have been talking about in Salem,” said Steve Duprey, co-chairman of Casino Free New Hampshire, the leading anti-casino group.

“Even states with destination casinos, in many cases, are struggling and looking for government relief.”

Former Senate Majority Leader Bob Clegg lobbied last year for an unnamed investor group that sought to turn Green Meadow Golf Club in Hudson into a destination casino resort.

The plan collapsed after likely environmental impacts and required infrastructure improvements made the project not financially feasible.

“Go out to Las Vegas and you’ll find casinos are just another entertainment arm of their core business, which are conventions and big-ticket shows,” Clegg said. “That’s where the real profits come from. In today’s casino world, you build big or you go home.”

Millennium Gaming, the Las Vegas-based group with an option to buy Rockingham Park in Salem, did enhance its project in May 2013.

The $600 million project would include not only slot machines and table games, but an adjoining hotel and a return of live horse racing.

But the two casino projects competing for a Boston area license to be awarded this summer – Mohegan Sun’s $1.3 billion Suffolk Downs site and Wynn Resorts’ $1.3 billion Everett facility – both dwarf the project proposed for Salem.

Millennium spokesman Rich Killion said nothing has changed in the region to alter his firm’s market analysis that New Hampshire and Boston area casinos can coexist.

“We knew what the impact was going to be from Massachusetts on us,” Killion said. “Obviously, they know the impact of what New Hampshire’s casino would be on them.

“We have known the two states could exist, and there is no reason for us to even hesitate but to continue moving forward.”

However, officials in Connecticut and Rhode Island anticipate the expansion of gambling in Massachusetts will have a negative impact on their casino revenues.

Connecticut forecasts a 5 percent decline in state profits from casinos in 2016 and 20 percent the next year.

“There is dramatic oversupply in the industry right now,” Foxwoods chief executive Scott Butera told The Wall Street Journal.

Rhode Island generates 9.5 percent of its state revenue from its two casinos, more than any other state. But with Massachusetts casinos in the offing, officials there project the state will lose $422 million in casino revenue over the next five years.

Killion, speaking for Millennium, said the big lesson to learn from rapid casino expansion throughout Pennsylvania, Delaware and other states over the last decade is that only a small number of casino sites can survive here.

“Look at Pennsylvania: 12 casinos, many of which were located strategically at the borders of other states to draw gaming revenues from them,” Killion said. “That was a unique market design that can’t be matched up here. Even with business from neighboring states, the market is not large enough to support three, four, even more facilities of any kind in New Hampshire.”

With increased competition from New York, Pennsylvania gambling revenues have flattened out the last couple of years, leading officials to conclude the industry has reached its saturation point.

“There’s no doubt that the biggest reason for the decrease is that there is more and more competition along our borders,” Doug Harbach, Pennsylvania gaming control board spokesman, told the Pittsburgh Post-Gazette.

Gov. Maggie Hassan supported one “high-end, highly regulated” casino, although the 2014 casino bill that narrowly died in the House of Representatives would have allowed for two licenses.

Sen. Lou D’Allesandro, D-Manchester, the political godfather of the New Hampshire casino initiative over the last 15 years, said it’s too early to speculate on the specifics of the inevitable casino bill to come in 2015.

Dr. Clyde Barrow, director of the Center for Policy Analysis at the University of Massachusetts Dartmouth, agrees with the premise that the Northeast is saturated. But Barrow said there remain a pair of distinct markets with untapped casino profit potential.

“The last two significant pockets in the Northeast really are in New York and Massachusetts, and I would include New Hampshire in all of that, as well,” Barrow said.

Even casino opponents can’t ignore one reality: Boston is the biggest metropolitan market in the Northeast without a casino within an hour’s drive.

“I have always said I still think just in the New England market you have another $1.5 billion to $2 billion in gaming demand based on what and where you locate it,” Barrow said.

“Saturation is not a set number. There is not a magic formula that gets you there. You have to look at the number and size of facilities, the population and the income growth in each market.

Barrow said destination resort casinos are the most likely model for success in New England.

“My concern is that since the last great recession, states have shifted their gaming policy from revenues to job creation,” Barrow said.

“Slot machines drive the profits of a casino-centric model, while jobs come from gaming tables, the retail shopping, the other amenities of a destination resort.”

The Center for Public Policy Studies in New Hampshire wrote the landmark 2010 report on the impact of expanded gambling. The nonpartisan think tank continued to advise the Legislature on its casino bills this spring.

“There is still the potential for a casino someplace in the Greater Boston area or in New Hampshire,” said Vice President Dennis Delay, the group’s resident economist. “I think it is a big enough market, and from gambling’s point of view, it’s clearly an underserved market.”

But Delay said casinos shouldn’t be seen as a region’s engine of new economic activity.

“The thing about gambling is it’s equivalent to most entertainment industries: It doesn’t create a whole lot of new wealth in an area,” Delay said.

“Whether it’s a ballpark in downtown Manchester or a night at the casino, you are still competing for the same dollar.”

Kevin Landrigan can reached at
321-7040 or klandrigan@nashua
telegraph.com. Also, follow Landrigan on Twitter (@Klandrigan).